Kingfisher Airlines' Q2 loss may be more than the reported Rs 753 crore: Auditors

MUMBAI: Auditors for Kingfisher Airlines in the limited review report for the second quarter of the current financial year said that if Kingfisher would not have taken into account the deferred tax credit the actual losses for the second quarter for the airline would be Rs 1,032 crore as against the reported loss of Rs 753 crore.

Kingfisher's audit firm BK Ramadhyani & Co said that by the same accounting standard the reported loss for the airline for the previous quarter would also have been Rs 941 crore instead of Rs 641 crore.

The auditors pointed out to a deferred tax credit of Rs 472 crore recognised up to September 2012 and stated "in our opinion, the virtual certainty test for recognition of deferred tax credit as laid down in Auditing Standard 22 is not satisfied".

The company in a response said that "the management is of the opinion that there is virtual certainty supported by convincing evidence that sufficient future taxable income will be available against which the deferred tax asset can be realized".

The auditors also pointed out that Kingfisher has not followed some other standard auditing practices like inclusion of certain subsidy provided to the company by one of its suppliers in conjunction with lease of aircraft on operating lease basis not being in line with standard accounting practices.

The auditors said that the financials of the company are being prepared on a going concern basis, not withstanding the fact that the company's net worth is eroded.

"The appropriateness of the said basis is interalia dependent on the company's ability to obtain restoration of the scheduled air operator's permit by the Director General of Civil Aviation, GOI, infuse requisite funds for meeting its obligations, rescheduling of debt and other liabilities and resuming normal operations," the report said.

Grounded Kingfisher Airlines on Thursday said its net loss for the quarter ended September 30 is Rs 753.6 crore. This is a sharp increase from Rs 468.66-crore loss it posted during the same quarter for the last year. The airline's quarter-on-quarter loss, too, has gone up from Rs 650 crore due to disrupted flight schedules.

The airline's operating income plunged to Rs 200 crore from Rs 1,552.87 crore from the corresponding quarter last year as its operations were staggered in the second quarter this year. The airline also faced employee unrest intermittently during the quarter forcing rescheduling or cancellation of flights impacting operations negatively.

Sequentially too the operating income has shrunk from Rs 301.38 crore.

The airline that lost over a thousand employees and has not paid full salaries to remaining employees showed employee costs coming down to Rs 47 crore from Rs 183 crore for the same quarter last year. The employee costs stood at Rs 59 crore for the first quarter of the current financial year.

The airline said its operating loss for the quarter ending September is Rs 220 crore but after adjusting for finance costs of Rs 401 crore, a one time cost of Rs 448 crore due to re-delivery of aircraft and restructuring or idle costs and taxes, the net loss was Rs 754 crore.

Equity analysts said that till there is further clarity and clear direction from the management of Kingfisher Airlines the stock remains unrated. Many equity research firms have stopped coverage since last year for the airline stock.

"Despite supply cut back (due to grounding of aircraft), losses continue to be high for Kingfisher. Future continues to remain uncertain on account of lack of clarity of a business revival plan by the management. Unless the management puts in money and strong action by management is seen on business revival, Kingfisher stock will remain unrated," said Rashesh Shah, analyst, ICICIDirect.

Kingfisher's licence was suspended by the aviation regulator in October after the airline failed to come up with a tangible revival plan.